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What Is 3PL And How Can It Help My Business?

Posted On April 30, 2015 by Laura

If you are selling online, a 3PL company can help your online eCommerce business grow rapidly.

3PL is a commonly used acronym in the world of logistics that stands for third party logistics or third party fulfillment. It is the activity of outsourcing logistics/fulfillment and distribution to an outside or third party company. A 3PL company manages all or a significant part of an organization’s logistics requirements and performs transportation, locating and sometimes product consolidation activities.

Phrased yet another way, 3PL is the function by which the owner of goods outsources various elements of the supply chain to another company that performs the management function of a client’s inbound freight, customs, warehousing, order fulfillment, distribution and outbound freight to the client’s customers.

3PL origins can be traced back as far as the 1970’s as companies found it more cost effective to outsource the majority of their logistics activities to 3rd parties. Over time these 3PL’s expanded their services to cover specific geographies, commodities, modes of transport and integrated their existing warehousing and transportation services to become what we know today as a 3PL. There are several benefits that today’s 3PL can offer to a wide range of businesses.

Flexibility

The current economic cycle has increased client’s focus on lowering inventory carrying costs as well as overall supply chain costs in general. Many businesses shifted to “Just in Time” inventory during the 90’s which left them very little buffer for the unexpected spike in order fluctuation. As a result, businesses veered towards 3PL’s to provide the flexibility that allows them to respond to infrastructure, modes of transportation and equipment needs accordingly. Advanced forecasting and planning have become essential in predicting needs in labor and support services. With these tools, 3PL’s are better able to manage peak seasons with precision and timing while having the ability to adjust down to avoid additional carrying costs.

Operation Efficiency

The top 3PL providers maintain an extensive global presence with an immense network of shippers and carriers. A network base of thousands of shippers allow greater buying power that translates to lower shipping rates and material cost savings to clients. IT and corporate costs are spread over a greater number of revenue-producing locations.

The majority of these providers have established a solid airfreight position in global markets providing easy access to major players in consumer goods such as China. Another good sign of a strong 3PL is identifying those that maintain solid cash flows, minimal to no debt, and a strong return on investment to ensure longevity and a long term partnership.

Enhanced Customer Service

In a competitive marketplace where consumers are driven by price, there is still one major element that makes a company stand out from the rest and that is by offering top notch customer service. A study by Defaqto Research shows that 55% of customers would pay more for a product if it meant they received a better experience.

Now more than ever this is the case, which poses an ongoing challenge for vertically integrated businesses competing on a worldwide scale. A Harris Interactive poll showed that 93% of online shoppers would not visit a business again after a poor ordering experience. This is why more and more clients have chosen to utilize 3PL companies to fill this gap knowing the challenges of matching all aspects of their business are nearly impossible, even by top companies that have the resources.

Lower Capital Expenditures

Shipping and transportation costs constitute a significant amount of capital for any company. As your shipping volume grows, a 3PL can move goods with a lower cost per shipment and add new services thereby lowering overall capital expenditures. It can optimize the flow of goods through the supply chain and implement warehouse layouts and designs that streamline inbound and outbound flow of product saving the client additional costs.

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A 3PL partner can make or break your business in so many areas. It’s important to align with one that best understands your needs and is able at a minimum to deliver quality and exceptional service to you and your customers on a consistent basis in these key areas.